LONDON, March 15 — The pound has experienced a chaotic week in reaction to Brexit’s twists and turns, with large swings against rival currencies a daily occurrence.
Over the week the pound has jumped 1.8 per cent against the dollar and 1 per cent versus the euro to trade at around US$1.3250 and €1.1700 respectively today.
The rally illustrates markets’ surprising confidence of there being an eventual smooth EU exit for Britain despite political unrest over sealing the country’s divorce.
In normal times, the pound tends to take its lead from changes in central bank monetary policy and economic indicators.
But for several months now, “Brexit is definitively the biggest” trigger for sterling, Carlo Alberto De Casa, an analyst for ActivTrades, told AFP.
This in turn has made the currency a good indicator of investor opinion regarding Brexit.
Generally, Brexit uncertainty and fears of an even greater slowdown to the UK economy than at present have weighed on the pound — with current values lower than before the June 2016 referendum on leaving the EU.
Tuesday erases Monday
The pound’s rollercoaster began late on Monday when British Prime Minister Theresa May announced securing “legally binding” guarantees from the EU designed to get the Brexit deal through the UK parliament and avert a chaotic withdrawal.
Almost immediately, the pound shot up 1 per cent against the dollar — a large movement for currency markets.
Optimism continued into Tuesday morning, with analysts suggesting that May could yet win a parliamentary vote on her deal despite suffering a massive defeat first time around in January.
The “second... vote is no longer a certain defeat for the UK government”, wrote analysts at MUFG.
The hopes were quickly swept away however when nearing midday in London, the government’s chief legal advisor declared that the legal risk of Britain being stuck in EU trade arrangements after Brexit “remains unchanged”.
That triggered a sharp reversal for the pound which promptly erased all gains won over the previous 24 hours.
By Wednesday morning, the pound was back in favour, gradually recovering as parliament prepared for yet another vote — this time on whether to rule out a no-deal Brexit.
By 2030 GMT, sterling rocketed to multi-month highs after MPs voted to reject a no-deal Brexit, prompting May to announce that she would put her EU divorce plan to parliament for a third time in the coming days.
Late Wednesday, the pound hit 1.1803 euros, a level not seen since May 2017 and ended the day 1.6 per cent higher versus the European single currency. Against the dollar, sterling had risen 2 per cent.
Yesterday parliament voted massively in favour of asking the EU to delay Brexit. With the outcome viewed as a logical step after the previous day’s no-deal result, the pound showed little reaction.
But sterling is likely to see further swings in the coming days, weeks and even months, depending on the nature of Brexit, with a chaotic divorce still a possibility.
In the case of a no-deal, “we can (expect to) see a huge movement on the pound”, predicted De Casa. — AFP